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What has happened to developers debts?
Comments
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Would you say it is concievable that NAMA could go bankrupt?Liam Byrne wrote: »Let us say a developer borrowed €100m from a bank.
NAMA has bought that debt from the bank for say €50m.
To pay the bank, NAMA/NTMA has borrowed €50m.
The developer still owes NAMA €100m, but NAMA realises that it is likely to only be able to recover a smaller number.
Meanwhile NAMA will only be able to sell the asset for €30m and will be paying interest on the €50m that it will never get back from the developer, who at this stage is either working for NAMA for €200,000 a year, getting rent from NAMA for buildings, or the developer goes bankrupt paying nothing.
It's a horrendous con.0 -
I think the OP might reflect the idea that when NAMA paid €50m for the loan, the state somehow acquired the balance of the developer's debt as public debt. That's not the case. The state has acquired an asset theoretically worth €100m for €50m.
Thats all very good if looked at in isolation.
But when you consider the fact that we also 'had to' acquire the bank that made the €50m loss in the first place you will see the taxpayer - that is us - is screwed all round.0 -
WhatNowForUs? wrote: »
Would you say it is concievable that NAMA could go bankrupt?Liam Byrne wrote: »Let us say a developer borrowed €100m from a bank.
NAMA has bought that debt from the bank for say €50m.
To pay the bank, NAMA/NTMA has borrowed €50m.
The developer still owes NAMA €100m, but NAMA realises that it is likely to only be able to recover a smaller number.
Meanwhile NAMA will only be able to sell the asset for €30m and will be paying interest on the €50m that it will never get back from the developer, who at this stage is either working for NAMA for €200,000 a year, getting rent from NAMA for buildings, or the developer goes bankrupt paying nothing.
It's a horrendous con.
If it does then property prices will return to where they should be, but NAMA will drag the country down with it meaning only the really well-off will be able to take advantage.
If it doesn't it'll keep the prices artificially inflated, with the same result that people won't be able to afford them.
Lose-lose setup, except for those it was set up to look after.0 -
WhatNowForUs? wrote: »
Would you say it is concievable that NAMA could go bankrupt?Liam Byrne wrote: »Let us say a developer borrowed €100m from a bank.
NAMA has bought that debt from the bank for say €50m.
To pay the bank, NAMA/NTMA has borrowed €50m.
The developer still owes NAMA €100m, but NAMA realises that it is likely to only be able to recover a smaller number.
Meanwhile NAMA will only be able to sell the asset for €30m and will be paying interest on the €50m that it will never get back from the developer, who at this stage is either working for NAMA for €200,000 a year, getting rent from NAMA for buildings, or the developer goes bankrupt paying nothing.
It's a horrendous con.
If it does then property prices will return to where they should be, but NAMA will drag the country down with it meaning only the really well-off will be able to take advantage.
If it doesn't it'll keep the prices artificially inflated, with the same result that people won't be able to afford them.
Lose-lose setup, except for those it was set up to look after.0 -
WhatNowForUs? wrote: »
Would you say it is concievable that NAMA could go bankrupt?Liam Byrne wrote: »Let us say a developer borrowed €100m from a bank.
NAMA has bought that debt from the bank for say €50m.
To pay the bank, NAMA/NTMA has borrowed €50m.
The developer still owes NAMA €100m, but NAMA realises that it is likely to only be able to recover a smaller number.
Meanwhile NAMA will only be able to sell the asset for €30m and will be paying interest on the €50m that it will never get back from the developer, who at this stage is either working for NAMA for €200,000 a year, getting rent from NAMA for buildings, or the developer goes bankrupt paying nothing.
It's a horrendous con.
If it does then property prices will return to where they should be, but NAMA will drag the country down with it meaning only the really well-off will be able to take advantage.
If it doesn't it'll keep the prices artificially inflated, with the same result that people won't be able to afford them.
Lose-lose setup, except for those it was set up to look after.0 -
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NAMA is set up on the premise of "Long term economic value".
Guess what folks - that term didn't exist 5 years ago - Google it and you will see.
It was dreamed up by Brian "the patriot"* Lenihan and his colleagues.
At what stage will we realise the LTEV pitch was a fallacy!?! They assumed 10 years - how many years are we into NAMAland now?!
*courtesy of the Sindo0 -
Thats all very good if looked at in isolation.
But when you consider the fact that we also 'had to' acquire the bank that made the €50m loss in the first place you will see the taxpayer - that is us - is screwed all round.
True, but that has nothing to do with the developers. The banks were the ones being bailed out.Nijmegen wrote:NAMA at its outset represents a state-structured path to redemption for the property market and all those who circulated around it. The state took huge risks out of the system and that has been to the benefit of many except tax payers.
These boys and girls played greedy buggers. They weren't entrepreneurs, they were playing a credit game with an easy in. In this instance, it's morally wrong to give them any assistance.
But what's the suggested alternative? How much would it cost to hire in equivalently skilled/experienced outsiders?
cordially,
Scofflaw0 -
Slideshowbob wrote: »NAMA is set up on the premise of "Long term economic value".
Guess what folks - that term didn't exist 5 years ago - Google it and you will see.
It was dreamed up by Brian "the patriot"* Lenihan and his colleagues.
At what stage will we realise the LTEV pitch was a fallacy!?! They assumed 10 years - how many years are we into NAMAland now?!
*courtesy of the Sindo
Sorry - are you sure about that?
http://www.google.ie/search?q=%22Long+term+economic+value%22&num=100&hl=en&newwindow=1&client=firefox-a&hs=Lz4&rls=org.mozilla%3Aen-US%3Aofficial&sa=X&ei=Eoc5T6nOEo2KhQfT_-3nAQ&ved=0CAwQpwUoBg&source=lnt&tbs=cdr%3A1%2Ccd_min%3A1%2F1%2F2001%2Ccd_max%3A1%2F1%2F2006&tbm=
cordially,
Scofflaw0 -
But what's the suggested alternative? How much would it cost to hire in equivalently skilled/experienced outsiders?
cordially,
Scofflaw
The difficulty is that no objective outside assessment can be made of this, given NAMA's lack of transparency. We don't know what the expertise would be or what the market rate for it would be.
In this circumstance, and given the perceived prevalence of 'jobs for the boys' in Irish government spending, I think people are right to question whether or not the NAMA employed developers haven't got a sweet deal.
It may not be the case. But that's the price of crossing your citizens: Habitual mistrust.0 -
Sorry - are you sure about that?
http://www.google.ie/search?q=%22Long+term+economic+value%22&num=100&hl=en&newwindow=1&client=firefox-a&hs=Lz4&rls=org.mozilla%3Aen-US%3Aofficial&sa=X&ei=Eoc5T6nOEo2KhQfT_-3nAQ&ved=0CAwQpwUoBg&source=lnt&tbs=cdr%3A1%2Ccd_min%3A1%2F1%2F2001%2Ccd_max%3A1%2F1%2F2006&tbm=
cordially,
Scofflaw
It's written into those texts alright in sentences but can you show me definition from back then or even one from now that doesn't have an NAMA context.
Over the course of time of course someone will string the words together.0 -
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Slideshowbob wrote: »There was no established demand, it was speculation.
Really? 66% of the residential mortgage market is, wait for it, owner occupied houses. So by now the people who bought homes were also speculating?
Isn't that undermining the whole argument that homeowners aren't responsible for the €100 billion (currently outstanding) they borrowed to pay for their homes.
The demand wasn't artifical, it was there. There were idiotic decisions made by all sides, but at the base of it all were people who wanted to buy.
But since you ndon't want to see that I'll introduce an example you might understand. MP3 players. Where would the ipod be if it weren't for people who wanted to listen to their entire music collection on a little device? Probably along side the devices brought out by thompson, sony and philips at the same time. There was no shortage of a supply of mp3 devices, but the demand was there (and people decided to saint steve jobs in the process).0 -
antoobrien wrote: »Really? 66% of the residential mortgage market is, wait for it, owner occupied houses. So by now the people who bought homes were also speculating?
Isn't that undermining the whole argument that homeowners aren't responsible for the €100 billion (currently outstanding) they borrowed to pay for their homes.
The demand wasn't artifical, it was there. There were idiotic decisions made by all sides, but at the base of it all were people who wanted to buy.
But since you ndon't want to see that I'll introduce an example you might understand. MP3 players. Where would the ipod be if it weren't for people who wanted to listen to their entire music collection on a little device? Probably along side the devices brought out by thompson, sony and philips at the same time. There was no shortage of a supply of mp3 devices, but the demand was there (and people decided to saint steve jobs in the process).
Obviously homeowners played a big part but the investor market seemed to be the biggest player, decent article on it:
Economic Incentives: Who “went mad borrowing”?Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
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Obviously homeowners played a big part but the investor market seemed to be the biggest player, decent article on it:
Economic Incentives: Who “went mad borrowing”?
Interestingly it points out that in 2008 the residential mortgages market (€110 billion) was about the same size as the property sector (€112 billion), both of which dwarfed buy to let (€36 b) and business laons (€60 b).
The fact that the buy to let sector and residential sector are greater than the property sector is a clear indicator that there was indeed demand.0 -
antoobrien wrote: »Interestingly it points out that in 2008 the residential mortgages market (€110 billion) was about the same size as the property sector (€112 billion), both of which dwarfed buy to let (€36 b) and business laons (€60 b).
The fact that the buy to let sector and residential sector are greater than the property sector is a clear indicator that there was indeed demand.
That is one way of looking at it, or:Excluding buy-to-let investment mortgages loans to households rose from €52 billion to €140 billion. Residential mortgages increased from €40 billion to €110 billion and other consumer borrowings rose from €13 billion to €30 billion.
With property-related loans perceived as being the source of our ills it is worth noting that household residential mortgages rose by €70 billion while investment and speculative loans in the property sector rose by more than €130 million. Both increases are excessive but it must be realised that one is almost twice as large as the other and also that the increase in mortgage debt was spread over hundreds of thousands households rather than being concentrated like the property loans.The stand-out figures are the 350% increase in buy-to-let mortgages and the 490% increase in loans to the construction and property sectors.
It's interesting how loans to the property went from less that half the loans of residential mortgages in 2003 to overtaking them in 08.
Could well all be a bit academic as obviously demand for buy to lets and residential property was feeding the property sector loans.Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
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Indeed, the very idea of laughing all the way to the bank whilst going through bankruptcy is a contradiction in terms. Its not a good place to be. You will not be able to get credit. Everything the company has will be disposed off to pay its creditors. There will be nothing left.
An argument can be made for individuals trading under their own names, who attempt to hide funds in secret accounts, or offshore accounts or with personal relatives. Or if company assets are stashed away in related companies or whatever. But I work in a law firm and I have chased debts before, even if not on this scale. We chase long and we chase hard. If you make us work, if you bleed our clients trying to get their money back, we have instructions to bleed you harder. Its an unpleasant line of work.
Anyone who has been through bankruptcy or has been chased by debt collectors will understand just how terrible it is. You have to get those threatening letters in the mail, you have to go through the process of living between court dates and having to prove to the satisfaction of a Judge that you are so stone f**king broke that there are no alternatives but to write off whatever debts are outstanding. And believe me, if there are alternatives, if there is a secret account, we will follow the string until it runs out. We will hound you until you crumble.
I feel lucky that I don't have to do that very often, since I work primarily in insurance and professional indemnity. I feel luckier still that I don't have firms hounding me for every cent I've got left. I feel luckier that I don't have to watch a company I built from nothing get picked apart until not even the bones are left. And in these cases its not just company assets up for grabs because most banks providing developer loans required some form of personal guarantee.
Make no mistake, those developers are going through hell even if it may arguably be a hell of their own creation. Some derive a sense of schadenfreude in this. I don't necessarily disagree with this position but you really have to go through this process yourself to understand how bad it is.
Somehow I suspect being chased by NAMA and by private creditors are two different things.0 -
Slideshowbob wrote: »It's written into those texts alright in sentences but can you show me definition from back then or even one from now that doesn't have an NAMA context.
Over the course of time of course someone will string the words together.
OK: http://www.proz.com/kudoz/english_to_french/finance_general/3028727-long_term_economic_value.html
cordially,
Scofflaw0 -
The difficulty is that no objective outside assessment can be made of this, given NAMA's lack of transparency. We don't know what the expertise would be or what the market rate for it would be.
In this circumstance, and given the perceived prevalence of 'jobs for the boys' in Irish government spending, I think people are right to question whether or not the NAMA employed developers haven't got a sweet deal.
It may not be the case. But that's the price of crossing your citizens: Habitual mistrust.
I'd accept those points. At the end of the day, though, they're fundamentally a comment on the optics.
cordially,
Scofflaw0 -
I'd accept those points. At the end of the day, though, they're fundamentally a comment on the optics.
cordially,
Scofflaw
I disagree there: I think that 'poor optics' is not the reason why people object to a culture like this in giving out public monies. I also believe that people have a credible past history to work on from government, this one and the previous one, in making the mental leap that NAMA might be benefiting a select few.
Optics is not the reason why people have a problem with this. It's the pervasive culture among those who should be spending our money wisely.0 -
I disagree there: I think that 'poor optics' is not the reason why people object to a culture like this in giving out public monies. I also believe that people have a credible past history to work on from government, this one and the previous one, in making the mental leap that NAMA might be benefiting a select few.
Optics is not the reason why people have a problem with this. It's the pervasive culture among those who should be spending our money wisely.
The reason I say they're comments on the optics is because we haven't actually established any reason for developers being bad people. I'd accept the idea that developers who didn't see the of the bubble probably shouldn't be hired as economic consultants, but that's not what's happening - your reasoning above essentially says that NAMA shouldn't employ developers because they should be being punished.
Punished for what, exactly? Losing a lot of money? If they haven't declared bankruptcy, then they're repaying that money - and under current circumstances, not with any real hope of profit.
Developers borrowed from the banks large sums to build the properties which Irish people wanted to buy. If they didn't foresee the end of the bubble, they were left with large amounts of debt, and a reduced ability to pay. They may, as a result, have had their loans transferred into NAMA. They didn't choose to have their loans transferred into NAMA, and indeed several of them fought the process. NAMA may make a loss - or a profit - but it's not a "bailout" for the developers. They're not being saved from their debts - that idea seems to be based on a complete misunderstanding of who the NAMA haircut applies to!
There is no difference there between a developer and any other business there, though - you borrow to expand. If you borrow to expand and a downturn hits, you go out of business and you owe money. Why are developers somehow evil whereas those who, say, borrowed to expand their tech company in 2000, and were wiped out in the dotcom crash in 2001, aren't?
There's a clear consensus here and elsewhere that developers are somehow "bad" - yet we've established that wanting to make money isn't intrinsically bad, that taking risks is not just not bad but usually admirable, and that borrowing money is just part of doing business. So where's the bit that makes developers "bad"?
cordially,
Scofflaw0 -
It is kinda weird paying a developer €200,000 a year when you have appointed a receiver to squeeze his company for every rusty cent its got prior to its inevitable liquidation. At which point, you go after the personal guarantee i.e. the developer's many homes, cars and personal bank accounts that are not in the company's name.
That sounds like a...pity f***.0 -
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It is kinda weird paying a developer €200,000 a year when you have appointed a receiver to squeeze his company for every rusty cent its got prior to its inevitable liquidation. At which point, you go after the personal guarantee i.e. the developer's many homes, cars and personal bank accounts that are not in the company's name.
That sounds like a...pity f***.
I'd say it has a brutal logic to it. The guy knows a lot about his proposed developments - more than anyone else - so you hire him to make a profit for you on those while squeezing his company and then his personal assets to retrieve his borrowings.
The only left-over question, I suppose, is whether €200k is too much. We can work that out reasonably easily - were developers living on less than that when their businesses were in full swing? I don't think they were - which suggests that you couldn't hire a currently successful developer for that little.
cordially,
Scofflaw0 -
The idea being that the €50m NAMA bought the loan for was less than the amount the developer will be able to pay. If the property securing the loan is worth €30m, then NAMA needs the developer to pay over €20m before foreclosure in order to yield a profit.
So in this case, say the amount the developer defaults on is €75m of the €100m. NAMA seizes the asset (property) in question, and sells it for €30m. NAMA makes €55m, having paid €50m for the loan - result, profit of €5m.
I think the OP might reflect the idea that when NAMA paid €50m for the loan, the state somehow acquired the balance of the developer's debt as public debt. That's not the case. The state has acquired an asset theoretically worth €100m for €50m. The asset in question is the loan to the developer - or to look at it another way, an agreement that the developer pay the bank €100m - which it has bought off the bank for a discount that reflects NAMA's view of how much the developer is actually likely to pay as well as the likely value of the security on the loan.
cordially,
Scofflaw
Sorry but you are helping to perpetrate the con.
Bank has a loan to a developer for €100m. NAMA buys the loan for €50m. Bank has lost €50m and requires recapitalization. The bank receives the full €100m (if not more) through NAMA and recapitalization i.e. the tax payer, likely through borrowed monies.
The developer pays back €25m and NAMA sell for €30m - a total of €55m recovered and a loss of a possible €45m, which people like you then try and pawn off on the Irish people as a success. Meanwhile the developer and his family keep their large homes and holiday abroad.0 -
Laminations wrote: »Sorry but you are helping to perpetrate the con.
Bank has a loan to a developer for €100m. NAMA buys the loan for €50m. Bank has lost €50m and requires recapitalization. The bank receives the full €100m (if not more) through NAMA and recapitalization i.e. the tax payer, likely through borrowed monies.
The developer pays back €25m and NAMA sell for €30m - a total of €55m recovered and a loss of a possible €45m, which people like you then try and pawn off on the Irish people as a success. Meanwhile the developer and his family keep their large homes and holiday abroad.
I'm certainly not trying to claim NAMA has been a success - there wouldn't be any grounds for deciding either way yet, so spare me the instant categorisation. Nor am I unaware of the point about bank recapitalisation - but unless someone makes a case for how bank recapitalisation benefits developers at the expense of the taxpayer it's not really relevant.
I'm pointing out that in the scenario above the developer has paid €25m and lost an asset worth €30m, and in exchange he's had €45m of his debt written off - but what was that debt acquired for? Are people under the impression that it went into a private bank vault?
regards,
Scofflaw0 -
The only left-over question, I suppose, is whether €200k is too much. We can work that out reasonably easily - were developers living on less than that when their businesses were in full swing? I don't think they were - which suggests that you couldn't hire a currently successful developer for that little.
cordially,
Scofflaw
That is a big question. What do they do for the 200K? NAMA admits that much of the loans on its books will never be recovered, so who is fooling who....the cute hoor developers on to an earner or Nama justifying its existence? Not a lot of debate or real examination went into the operation of NAMA before its set up. The value and credentials of these failed business
types remains to be seen, and NAMA in the meantime will provide them with a good pension at the taxpayers expense.0 -
That is a big question. What do they do for the 200K? NAMA admits that much of the loans on its books will never be recovered, so who is fooling who....the cute hoor developers on to an earner or Nama justifying its existence? Not a lot of debate or real examination went into the operation of NAMA before its set up. The value and credentials of these failed business
types remains to be seen, and NAMA in the meantime will provide them with a good pension at the taxpayers expense.
A bigger question in my book is how much of the 200K is being deducted at source to pay off their debt? If I default on a debt a court order can attach my earnings..is this being done to NAMA'd developers??
I'd be a lot happier that failed developers were being paid 200K if I knew they were left with an average industrial wage at the end of it.0 -
A bigger question in my book is how much of the 200K is being deducted at source to pay off their debt? If I default on a debt a court order can attach my earnings..is this being done to NAMA'd developers??
I'd be a lot happier that failed developers were being paid 200K if I knew they were left with an average industrial wage at the end of it.
I suspect its a bit of a closed shop as to what's going on with that, maybe a bit too cozy. NAMA has done its job in reality, taking the bad debts out of the banking system, and all these debts will be buried IMO in time. Not at all keen on the NAMA thing, to me, its like a big front, to pretend to the public/taxpayer that the debts will be recovered, so as to make the burden of debt on the taxpayer more palatable. I wonder would FG/LAbour have agreed to such a scheme if they had just been elected before FF set up this scheme?0 -
antoobrien wrote: »Really? 66% of the residential mortgage market is, wait for it, owner occupied houses. So by now the people who bought homes were also speculating?
Isn't that undermining the whole argument that homeowners aren't responsible for the €100 billion (currently outstanding) they borrowed to pay for their homes.
The demand wasn't artifical, it was there. There were idiotic decisions made by all sides, but at the base of it all were people who wanted to buy.
But since you ndon't want to see that I'll introduce an example you might understand. MP3 players. Where would the ipod be if it weren't for people who wanted to listen to their entire music collection on a little device? Probably along side the devices brought out by thompson, sony and philips at the same time. There was no shortage of a supply of mp3 devices, but the demand was there (and people decided to saint steve jobs in the process).
I am refering to debts of developers which was brought about by speculation.
They would have still wanted to buy if the prices were alot less also - the government / regulator did not take cognisance of underlying market / economics
Ipod comparison is totally irrelevant. There is no housing equivalent of an ipod so not sure why you are using it0 -
Ah thanks for that obscure, French, translated, 2009 (possibly came from NAMA direction) link there ;-)0 -
The reason I say they're comments on the optics is because we haven't actually established any reason for developers being bad people. I'd accept the idea that developers who didn't see the of the bubble probably shouldn't be hired as economic consultants, but that's not what's happening - your reasoning above essentially says that NAMA shouldn't employ developers because they should be being punished.
Punished for what, exactly? Losing a lot of money? If they haven't declared bankruptcy, then they're repaying that money - and under current circumstances, not with any real hope of profit.
Developers borrowed from the banks large sums to build the properties which Irish people wanted to buy. If they didn't foresee the end of the bubble, they were left with large amounts of debt, and a reduced ability to pay. They may, as a result, have had their loans transferred into NAMA. They didn't choose to have their loans transferred into NAMA, and indeed several of them fought the process. NAMA may make a loss - or a profit - but it's not a "bailout" for the developers. They're not being saved from their debts - that idea seems to be based on a complete misunderstanding of who the NAMA haircut applies to!
There is no difference there between a developer and any other business there, though - you borrow to expand. If you borrow to expand and a downturn hits, you go out of business and you owe money. Why are developers somehow evil whereas those who, say, borrowed to expand their tech company in 2000, and were wiped out in the dotcom crash in 2001, aren't?
There's a clear consensus here and elsewhere that developers are somehow "bad" - yet we've established that wanting to make money isn't intrinsically bad, that taking risks is not just not bad but usually admirable, and that borrowing money is just part of doing business. So where's the bit that makes developers "bad"?
cordially,
Scofflaw
I think what they did was terrible for the country with their whimsical over valuations being left on the heads of our children.
They were negligent in assessing the market, so too were the government and the regulator.
I said it before, the profits were not socialised in the good times so why are their debts now?
Chancers the lot of them
Pity debtors prison was written out of law and it may have prevented all this!!!0 -
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[snip]
There is no difference there between a developer and any other business there, though - you borrow to expand. If you borrow to expand and a downturn hits, you go out of business and you owe money. Why are developers somehow evil whereas those who, say, borrowed to expand their tech company in 2000, and were wiped out in the dotcom crash in 2001, aren't?
There's a clear consensus here and elsewhere that developers are somehow "bad" - yet we've established that wanting to make money isn't intrinsically bad, that taking risks is not just not bad but usually admirable, and that borrowing money is just part of doing business. So where's the bit that makes developers "bad"?
I'd agree completely except to say that the close relationship between the big developers and FF / government during the boom means that the developers - the bigger ones anyway - are not seen as ordinary hard-working businessmen and entrepreneurs but as corrupt insiders - "bad", in other words.0
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